Monetary adjusments

The greenback is getting back its color while the U.S. labor market shows signs of improvement and the ECB may be soon more accommodative.

After the recent cut of the central bank’s key rate, Mario Draghi, reiterated its willingness to closely monitor indicators of the Old Continent to act again if necessary. Probably motivated by the slowdown of inflation (1.2%) which is moving away from the target level (around 2%), two members of the Executive Board of the ECB, the French economist Benoît Coeuré and President of the Bank of Italy Ignazio Visco, have also made similar statements, leaving the door open to a more accommodative policy.

On the American side, the strength of the last monthly U.S. employment report, which shows a further decline in unemployment to the lowest level since December 2008 (7,5% in April against a peak beyond 10% in late 2009), encourages conversely officials to get tough. Thus, Charles Plosser, who heads the Philly Fed, wants the institution to slow down its assets purchases while the Wall Street Journal indicates that the central bank would have developed a strategy of gradual decrease in liquidity infusion.

Finally, these prospects of monetary policy adjustments drive some tradeoffs that penalize the single currency, and speculations about a possible increase in dollar reserves of China support the U.S. dollar, as well.

Graphically, after a triple top around USD 1.32, the Euro broke down 1.30 in a bearish dynamic. We are now bearish and aim a comeback towards 1.2773, unprecedented level since the beginning of April.